capitalism

Who would have thought that a software company would become a pivot point in the east-west struggle to define globalization and capitalism in the twenty-first century? The obvious software companies that have direct effects on globalization — companies like Microsoft, SAP, Oracle and Salesforce.com all have important application level solutions that contribute to the global ball of wax but they were not involved. None of them has had the effect that Google has had in the last week.

The search company came to the situation quite by accident, without intent and to be honest, I think they were unwilling participants having been pushed or more likely pulled, into the mess. Of course I am talking about Google’s ongoing dust up with the Chinese government.

Earlier this week we got word of an attack on Gmail servers by computers in China in which the Chinese tried to obtain data about the private email accounts of Chinese dissidents. In addition to the Gmail attack, 33 other companies were hit. In those cases valuable computer source code was stolen or at least an attempt was made to steal it. It was not the first time something like this happened. If you check out another piece on this site you can find more details.

As a Chinese proverb says, “May you live in interesting times.” Well this is it. And keep in mind that the translation of interesting is anything but benign. The implication in interesting is turbulence. The incident, and Google’s reaction to it come at a very interesting time. China has established itself as the world’s workshop with a ten percent growth rate and all of the problems that go with it including high expectations of an improving standard of living.

Much in contrast to what many talking heads have spouted, China has not discovered capitalism so much as it has harnessed mercantilism, an economic system that focuses making things for export while depressing the value of its currency and repressing its people.

China has used the trappings of capitalism — especially importing foreign capital and expertise to rapidly evolve from a poor agrarian economy to one that is increasingly urban and oriented toward building cities, power plants, roads and more. In short, the country is modernizing at breakneck speed. We know all this. (Did I already mention the ten percent annual growth?)

Keeping the lid on mercantilism requires authoritarian rule and control of information to better control the populace. Orwell had it right. But for a country growing as China is, the stirrings of the people for a better life goes well beyond the material. The American social scientist, Abraham Maslow showed in a famous paper published in the 1940’s that humans have a hierarchy of needs, the higher ones focusing on self actualization and self esteem.

The problem for China is that controlling information as it does will have little effect on its manufacturing prowess. But the game has changed, recent global events, most notably the credit crisis, are drying up markets. Western consumers have mortgaged themselves silly trying to buy all of the semi-useful plastic that China, Inc. spews out like so many salad shooters. China’s inevitable evolution as a nation has to be in areas that are information intensive and there’s the rub. In a nation where the state controls information flow, the essential raw material of China’s future will be forever bottled up causing an impediment to future growth.

Moreover the world’s attention is focused like the proverbial (Ok, Clintonian) laser beam on what China does next. The world economy that has invested in China and bought its goods still has not gone “all in” and how the Google affair is handled (and the obvious larceny of intellectual property) will have a lot to do with China’s future.

So far, the world community has been very reluctant to say much beyond President Obama’s comments yesterday endorsing Google’s stand. If it was up to me, I would tell the Chinese to turn back one containership full of merchandise for every company that was hacked. Please don’t tell me about all the Americans who would be hurt by this shortfall of merchandise. Sometimes you have to take a stand.

It took the world ten long years to forget Tiananmen Square and when China was finally allowed to join the World Trade Organization in 1999 it was with the understanding that China’s leaders had learned something and grown. The events of the last week stand in stark contrast. China seems to be taking on capitalism and globalization as if they were at a buffet. This isn’t a buffet — democracy and basic human freedoms as expressed by the U.N. Universal Declaration of Human Rights are all part of the package. If you want to be in the game, that is.

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Beagle Research Group, LLC is a CRM analyst firm founded in 2004. We perform market research for vendors and advise end users in CRM selection, deployment and use. We also publish a steady stream of analysis on many of the industry’s most popular topics as well as emerging trends. For example, one of our core pursuits is researching emerging companies to understand current innovation trends. This research informs the advice we give our clients and readers.